The Prime-1 short-term deposit rating was affirmed. The ratings of Erste Group as well as those of certain subsidiaries were also placed on review for possible downgrade.
"The review for downgrade reflects Moody's concern that the bank's financial flexibility -- most notably its capitalisation levels, but also its profitability -- may not be sufficiently strong to withstand the expected weakening in most of its markets in Central & Eastern Europe (CEE) and may require further capital strengthening measures over the course of the next couple of years," explains Guido Versondert, lead analyst for Erste Bank within Moody’s.
The decision takes into account the temporary benefits of the government’s 2.7 billion euros capital contribution, which is earmarked for early 2009, as well as the completion of the sale in Q4 2008 of Erste Bank’s insurance operations resulting in a 600 million euros capital strengthening.
Moody’s says that the increasing visibility of a significant economic slowdown in Erste Group’s core markets in Central and Eastern Europe will exert pressure on asset quality, capital ratios, revenues and earnings because the bank’s performance is heavily dependent on the rapidly growing retail banking franchises which the bank has successfully established in the region.
At September 30, 2008, around 62% of Erste Group’s pre-tax profits were generated within Central and Eastern Europe, with the Czech and Romania being the most important markets.
"Erste Group Bank has built well-performing retail banks in CEE with attractive long-term prospects. Nonetheless, the economic and political uncertainty and the instability still inherent in many of these markets is considerable. The looming economic downturn may reduce revenue and earnings streams, affect asset quality and erode capital ratios," Versondert adds.
Erste Group, majority shareholder of Romanian Commercial Bank (BCR) reported after-tax profit of 1.463 billion euros for first nine months this year, up 74.6% from a year earlier.
The group’s assets climbed 4.4% in September, up to 209.4 billion euros, from a year earlier.
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